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U.S. Steel suffers legal blow Add to ...

United States Steel Corp. has suffered another legal setback in its battle with Ottawa, which is trying to punish the company for allegedly breaking promises it made to maintain jobs when it took over Hamilton-based Stelco Inc. in 2007.

In a ruling dated May 25, the Federal Court of Appeal threw out Pittsburgh-based U.S. Steel’s arguments that the federal Investment Canada Act was unconstitutional, upholding a lower-court ruling from last year. It was not known whether the company intends to seek leave to appeal to the Supreme Court of Canada.

Even if U.S. Steel decides not to appeal, the company’s battle is far from over. The federal government’s primary court case against the company, in which it is seeking to fine U.S. Steel for allegedly backtracking on its promises, remains locked in preliminary legal skirmishing.

The 1984 Investment Canada Act, which Ottawa used last year to block the takeover of Potash Corp. of Saskatchewan by Australian mining giant BHP Billiton Ltd., allows the government to extract promises or “undertakings” from foreign purchasers of large Canadian companies. Before it gives its approval, Ottawa must determine that any deal provides a “net benefit” to Canada.

The act also allows Ottawa to order foreign firms to live up to their pledges, and impose massive fines for breaking their word.

When U.S. Steel bought struggling Stelco, the last of Canada’s major steel makers, in 2007, it pledged to maintain certain levels of employment and production. But the worldwide economic collapse in 2008, the company says, forced it to shed 2,400 workers and scale back production at its two former Stelco plants in Ontario.

That excuse did not satisfy then-federal industry minister Tony Clement, who took the unprecedented step of using the Investment Canada Act to take U.S. Steel to court in 2009, accusing it of breaking its promises.

U.S. Steel argued that the potential punishment for violating the act – what it termed “King Kong” retroactive fines of up to $10,000 a day that now add up to tens of millions – amounted to a criminal penalty. This, U.S. Steel said, meant it should be entitled to the protections for accused criminals under the Charter of Rights and Freedoms.

The company argued that the procedure under the Investment Canada Act denied it the right to a “full answer and defence,” because Mr. Clement had failed to explain why he rejected the firm’s explanation for failing to keep its pledges.

But a three-judge panel of the Federal Court of Appeal disagreed, saying U.S. Steel is not entitled to the Charter rights afforded to accused criminals in what is a civil case. The judges upheld last June’s Federal Court ruling that the legislation’s hefty fines do not make for criminal penalties, saying that “large penalties are required to deter major corporations.”

The appeal judges’ ruling also says that while refusing to pay fines could lead to contempt-of-court proceedings and jail time, U.S. Steel would benefit from full Charter protection in Federal Court if it ever came to that.

Michael Barrack, a lawyer for U.S. Steel, said he was still reviewing the decision and could not comment.

A spokesman for Industry Canada said the department could not provide comment on the ruling before deadline.

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